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Last Monday, the Ministry of Finance submitted to the Congress of the Republic the General National Budget (PGN) project for 2025, with a global amount of 523 billion pesos. The plan is 3.9% more than the amount approved this year, with financing of 511 billion pesos. The remaining 12 billion will be contingent, “subject to the financing law”.
For the second year in a row, the government has made the budget discussion contingent on the approval of another supplementary bill. While about P10 billion should be collected from the Dian dispute arbitration in 2023, this year the Petro government estimates the calculation of its new tax reform at about P12 billion, or about 0.7% of GDP. It is worth remembering that the motion for legislative litigation was never passed, which, together with other factors, led to a significant gap in the fiscal accounts in 2024.
The 2025 budget projects an increase in operating expenses – 327.9 billion pesos, an increase of 6%, and debt payments – 112.6 billion pesos, an increase of 19%. Investment resources, at 99 billion pesos this year, will fall by 17% to 82.4 billion pesos. Although the public finance portfolio reiterates that this work takes into account economic recovery, investment projects will fall in 24 of the 31 sectors of the budget. Investments can promote key sectors capable of driving growth and energizing productive institutions.
The first thing to say is that the National Government cannot repeat this year the “happy accounts” of the 2024 budget financing. Overoptimistic forecasts for collection and management, underestimation of the impact of the economic slowdown and reliance on additional legal approvals have led to worrying fiscal tightening and cash problems.
In fact, this year’s budget has already been cut by about 20 billion pesos. To this, it must be added that experts predict that 40% of this “cut” will not be applicable and that the government may be forced to make new decisions on cuts of billions of dollars in order to balance the unbalanced accounts. In other words, the budgetary exercise for 2025 cannot ignore these very close antecedents and needs to be adjusted to the reality of limited room for maneuver.
Therefore, by 2025, national governments should commit to an ambitious and real tightening of public spending. Without neglecting the rigidity and inflexibility of budgetary rules, it is necessary to find those operational areas where significant savings can be generated beyond the scope of traditional announcements. On the other hand, the budget, and especially productive investments, can be a driving tool for economic recovery if well designed and directed.
Finally, approving $12 billion in new tax reforms is not an option. Companies and households cannot afford more taxes and fees in the face of a sudden economic halt. Congress must discuss an exercise that accommodates these realities.
Francisco Miranda Hamburg
framir@portafolio.co
X: @pachomiranda
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